Derek Norton and Jeremy Milken have known each other for twenty years. During their longstanding personal and professional relationship, the two Los Angeles-based serial entrepreneurs have invested in each other's businesses and securities firms, but have never worked together.
Milken takes the plunge into institutional investing and joins Norton as a partner in Watertower Ventures as the company prepares to close a new $ 50 million fund.
It's an auspicious time for both Los Angeles-based business professionals as the LA Venture community sees a surge of tech talent moving from New York and San Francisco into the new work culture created by the COVID-19 epidemic.
“I see two things happen. You look at the effects of the market. We're seeing a lot more companies born because of a (pandemic), ”Norton said. “New companies are being set up faster than before. (And) a lot of venture capitalists who moved to LA. They moved to LA for the sake of lifestyle and say they don't have to go back to San Francisco. "
For Milken, being able to start a business now is a function of business incorporation and accelerating digital adoption that Norton referred to. “The pandemic is accelerating change in the market. Things that could have lasted a decade now last two years, ”said Milken.
These opportunities open up Watertower Ventures to markets far beyond the Hollywood Hills. The company, whose original thesis focused on Los Angeles, San Francisco and New York, is currently reviewing investments in Texas and Utah and is spending much less time looking for businesses in the Bay Area.
Norton's newest fund is the only act in a career where the investor has traversed digital media for financial services and the dawn of the internet. Norton built Digital Boardwalk, a pioneering Internet service provider and second commercial partner for the groundbreaking browser service Netscape.
Norton later worked at Jeffries Technologies and Entertainment Media Ventures' $ 120 million seed and early-stage venture capital fund, bringing technology to market and focusing on early-stage investments. With that in mind, Watertower Ventures Group, which was founded in 2017 with a small fund of USD 5 million, is a return to those roots.
Even then, the plan was always to raise a larger fund. After founding and running the boutique investment banking business at Watertower Group, Norton knew he had to set up a starter fund to prove the thesis he was working on.
This thesis aimed to bridge the gap between early-stage companies and large tech companies leveraging the network Norton has built over decades in the Southern California tech and entertainment community.
“We would like to take up our contacts on Google. Apple, Facebook, Disney, Microsoft, Cisco, Verizon, AT&T, Comcast and other companies that we believe should have a relationship with our portfolio companies and help CEOs and management teams do business more effectively, " Norton told SoCal Tech that it closed its first fund in 2017. “We want to connect them with the right person in these companies to build a business relationship. This has a huge impact on early-stage businesses, which typically don't have a deep network of relationships, and the ability to reach out to these types of people. Because of our consulting business, we have these relationships and therefore these relationships remain fresh and active compared to people who are not in these businesses. It is almost a full time job to keep this up and that is where our added value lies. "
Having spent his professional career in entrepreneurship, Milken was ready to invest and was very familiar with Watertower and its portfolio as an investor in the company's first $ 5 million funds.
"We started these conversations two years ago," Norton said in an interview. "When Jeremy left his business in September, it was an opportunity to work together to develop our partnership."
Norton expects the new capital to support 30 to 35 companies, he said. And as evidence of the performance of the first fund, which is in the top decile venture fund for its year, Norton said it could raise the capital in the face of the economic uncertainty caused by the COVID-19 pandemic. According to Norton, around 70 percent of the existing portfolio has been marked.
Although limited partners, the investors who back venture funds, were reluctant to raise capital for new businesses in March and April, fundraising returned with a vengeance in June and July, according to Norton. The paper performance was likely enough to attract additional limited partners and individual investors like TikTok Managing Director Kevin Mayer, former Head of Streaming at Disney.
Mayer's presence in the company's investor base is testament to the company's attitude towards founders. “We see fundraising as a massive distraction for these early-stage companies from their business. We try to give these founders the network that we own, ”said Norton.
"I think we are in a unique position starting with a new fund here," says Norton. “Uncertainty creates opportunities and people bring solutions. We didn't notice any slowdown, we work with 25 companies a week. We have not seen any deal flow at this level since the fund was launched. "